US SEC to Conduct ‘High-Level Inquires’ into Crypto Market Next Year

[Ozark]

The securities regulator has released its 2019 compliance examination program with digital assets named as one of the top priorities.

The US Securities and Exchange Commission (SEC) has decided to intensify its regulatory checks in the cryptocurrency industry next year due to the higher risk and growing size of the market, a compliance examination program for 2019 released on Thursday showed.

The SEC Office of Compliance and Examinations named digital assets as one of the top six priorities because the Commission’s inspectors identified several problematic areas during their work with crypto companies this year. The SEC is concerned about custody and safekeeping issues, “dramatic” price volatility, valuation of the services, misleading or omitted disclosures related to the complexity of distributed ledger technology and the various blockchain-based market products.

“In particular, through high level inquiries, OCIE will take steps to identify market participants offering, selling, trading, and managing these products or considering or actively seeking to offer these products and then assess the extent of their activities,”     
The SEC crypto inspections will cover companies whose digital asset offerings follow American federal definitions of securities. In particular, the regulator will focus on examining existing trading practices, ways of pricing customer’s portfolios, internal systems of control, and the solutions implemented for protecting client funds.

At the end of every year, the SEC announces its compliance priorities with the aim to provide more information about the areas the regulator believes are a higher risk to investors and the integrity of the US capital markets. The other five themes for 2019 also have connections with the crypto market, especially the planned examination of the existing anti-money laundering (AML) programs, cybersecurity-related inspections, retail investor protection checks with a focus on seniors, and examinations of critical market infrastructure among national clearing houses and securities exchanges.

The SEC planned more intensified oversight of federal and municipal broker-dealer self-regulatory organizations that also have indirect links to the virtual asset market as US crypto brokers are obliged to follow the Financial Industry Regulatory (FINRA) and the Municipal Securities Rulemaking Board (MSRB) rules respectively.

Last month, the SEC published advice warning crypto companies that they are obliged to follow US federal securities laws when the rules are applicable.

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